When is it not a good idea to finance 100% of your new home?

Question

I am moving from MS to CA. I will need cash to pay for the move of my household goods and initial set up of my new home. I expect to make about $68,000 on the sale of my previous home but, will not have cash in hand until well after I close on the new home.

Answer 1

It depends upon so many factors...

How expensive a home are you purchasing? If you are able to put at least 20% down, then you will save having to pay PMI. That's a pretty good chunk of change. (Don't let anyone tell you that you qualify for a loan without PMI, as all those lenders do is jack up the interest and purchase the PMI themselves. And an 80-20 will be very expensive on the second, more than outweighing the cost of PMI.) Even putting 10-15% down will significantly lower your PMI cost.

How comfortable are the monthly payments? If you're barely able to make the monthly payments, putting money down will not only lower the payments, but give you a cushion should something go wrong.

How disciplined are you? Will the money you make on the sale of the home disappear in a year? Get frittered away? If so, then put it in the home.

Finally, do you really need to purchase when you first move? Waiting six months or a year will allow you to be sure which area is best for you in your new city. Renting for that period wouldn't necessarily be a bad thing. And that would make your profit from the sale of the MS home available at the time of purchase.

Good Luck.

Answer 2

My initial instinct is to say NEVER. They are the root cause of the thousands of repo's going on in California. They're never JUST 100%, most are interest only, high interest, adjustables that will drag all your money down with them. Not to mention, most of them have major pre-payment penalties that make it almost impossible to refinance within the first few years. Trust me, I see too many of them every day 100% loans (usually 2 loans, not 1) are bad news. Don't let any mortgage broker or bank tell you different.

If you can at all wait for the closing of your prior home, do it. You could refinance when the other house closes, but you're throwing away a lot of costs, both with the initial purchase loans and with the refi.

Good luck!

Answer 3

The experts always tell you that it better to use other people's money (loans) to make these purchases, or to invest. But me? I like a good night's sleep, so when I can pay cash and don't have to worry about the payments, I do it. it also depends if money is cheap or expensive, I would think.